The Latest on Social Security

Social Security payments are adjusted every year to keep up with inflation as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers.

Benefits:

Those who sign up for Social Security before their full retirement age receive a reduced payment. Those turning 62 in 2018 will need to wait until 66 and four months to claim their full retirement benefit. The full retirement age for people born in 1955 was 66 and two months; for everyone born between 1943 and 1954, it was 66.

Social Security beneficiaries will get 2 percent bigger payments in 2018. Social Security benefits were increased by only 0.3 percent in January 2017, the last increase since increasing 1.7% in 2015, following a 1.5% COLA for 2014. Previous cost-of-living adjustments have ranged from zero in 2010, 2011 and 2016 to 14.3 percent in 1980.1,2

The average monthly Social Security payment is expected to increase by $27 to $1,404 in January 2018. Couples who are both receiving benefits will see their payments climb by an average of $46 to $2,340. The maximum possible Social Security benefit for a worker who begins collecting benefits at full retirement age will be $2,788 in 2018, up from $2,687 in 2017. The average retired couple received $2,176 per month in 2015. A single retiree claiming benefits at thefull retirement age of 66 in 2015 got a maximum monthly Social Security payment of $2,663.1,2

Social Security’s retirement earnings test amounts have also risen.
Retirees who work and collect Social Security benefits at the same time will be able to earn slightly more in 2018 before part or all of their benefit is temporarily withheld. Beneficiaries who are younger than their full retirement age (i.e., age 62-65) can earn up to $17,040 in 2018, increased by $120 from 2017, before they will lose a benefit dollar for each $2 earned above the limit. In 2015, the test amount was $15,720 and in the 2014 limit was $15,480.

The earning limit will grow by $480 to $45,360 for those who will turn their retirement age in 2018, and the penalty decreases to a dollar withheld for every $3 earned above the limit. Those who reached full retirement age of 66 during 2015, withheld $1 of benefits for every $3 earned above $41,880. Once you turn your full retirement age there is no penalty for working after claiming retirement benefits and your benefit will be recalculated to give you credit for any withheld earnings.
1,2

2018 Trustee Projections:
The Social Security program’s costs are expected to exceed its income in 2018, marking the first time that has happened since 1982 and forcing the Federal Government to dip into the retirement system’s trust fund to pay benefits to participants. The program’s trustees said the shortfall trend could worsen in the decades to come, and forecast that reserves will be depleted by 2034, at which point it won’t be able to pay full benefits on a timely basis. The report said that if the funds are depleted, the program could pay about three-quarters of benefits. 3

Tax Considerations:

As always, part of your Social Security benefits may be taxed. This may happen if you exceed the program’s “combined income” threshold. (Combined income = adjusted gross income + non-taxable interest + 50% of Social Security benefits.)4

The Social Security wage base continues to climb. Workers will contribute 6.2 percent of their earnings to Social Security until their income exceeds $128,700 in 2018, up from $127,200 in 2017, compared to the $118,500 threshold set in 2015. 1,2

What about Social Security’s projected long-range shortfall?

Social Security projects that it can tap its combined trust funds of roughly $2.8 trillion to pay 100% of scheduled retirement benefits through 2033. Thanks to the aging of the baby boomers, however, it has begun paying out more than it takes in. Social Security’s trustees project annual cash flow deficits averaging $77 billion across 2014-18, which could subsequently increase. 5,6

How does Social Security fix that? The simple fix many legislators have suggested is to hike the full retirement age. The Full retirement age for those turning 62 in 2018 is set to 66 and 4 months and will increase by 2 months each year until it reaches age 67 for everyone born in 1960 or later. A 2014 SSA report noted the potential savings that might result from incremental adjustments. If the full retirement age was gradually raised to 68 during the next six years, that would cut 15% from the program’s present deficit. If it gradually raised it to 69 across the next 12 years, Social Security’s long-term shortfall would shrink 35%. The boldest suggestion – swiftly taking the full retirement age north to 70 and denying seniors a chance to claim Social Security until age 64 – would reduce the program’s deficit by 48%. Of course, the social and economic effects of even the less drastic moves could be devastating for many retirees.1,7

Another suggestion would be to radically hike the Social Security wage base to expose 90% of earned wages to Social Security taxes; the SSA says that move could reduce the long-range Social Security deficit by 48%. Alternately or in conjunction, the payroll tax could be raised from 12.4%; taking it up to 15.5% could get rid of the long-range shortfall and possibly leave a surplus, the SSA estimates.7

Or, Social Security COLAs could be linked to price growth instead of average wage growth – that is, to the “chained” CPI rather than the regular Consumer Price Index. In their above-mentioned 2014 report (which contains 120 ideas for reforming the program), Social Security trustees posit that basing COLAs on chained CPI would cut the long-term deficit by 19%. The SSA says COLAs could be 0.3% smaller annually if they were based on the chained CPI, which assumes that consumers buy cheaper versions of certain goods and services in the face of rising prices. Senior advocates would prefer COLAs being linked to the experimental CPI-E, an index the Bureau of Labor Statistics uses to track spending patterns of retirees. The CPI-E tends to rise 0.2% faster than the regular Consumer Price Index.7,8

What if some of Social Security’s reserves were invested in equities rather than Treasuries? Some economists contend this could have nightmarish results, others praise the idea. The SSA notes that if 40% of the Social Security trust funds were directed into equities with an average inflation-adjusted return of 6.4% per year – as opposed to special-issue Treasuries with long-term, inflation-adjusted returns of 2.9% a year – Social Security’s long-range funding gap would decrease by 21%.7

How much retirement income do you have these days? With Social Security’s future still surrounded by questions, you may be thinking about where your retirement income will come from in the years ahead.

Annuity Questions?

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